Types of Bank Accounts: A Comprehensive List

Eve Chin, VP Deposit Planning and Strategy, First Republic Bank

November 15, 2021

You work hard for your money, and reaching your financial goals requires protecting your funds, as well as finding ways to help your money work harder for you.

Selecting the right bank account is a good step toward pain-free money management. The best account for you should allow you to store your money safely and to even earn interest or rewards for banking. However, understanding the differences between various bank accounts is important, so you can make informed decisions about which accounts to open.

Read on to learn more about the different types of bank accounts that could work for you — and the benefits and drawbacks of each.

Checking Accounts

A checking account is among the most common types of bank accounts. Designed for day-to-day transactions, as well as receiving regular payments, a checking account makes it easy for you to pay bills, make purchases and receive deposits, such as payments from your employer.

Benefits	Drawbacks
High transaction limits or unlimited transactions per statement period Option to receive money via direct deposit, mobile check deposit and ACH while sending money via bank or wire transfer Ability to deposit or withdraw funds via ATM Often comes with a debit card so you can make purchases at a point of sale (POS)	You earn little to no interest on the money held in your checking account Some financial institutions may charge fees for maintaining a checking account, including ATM fees, monthly maintenance fees or less commonly, statement fees May require a minimum balance to avoid being assessed an account maintenance fee

Opening a personal checking account provides a “home base” from which to manage your everyday expenses and should be a core part of your basic banking needs.

Savings Accounts

You may have heard the value of “paying yourself first.” Selecting a deposit account that helps you make the most of doing this through savings is almost as important as the act of saving itself.

A savings account is designed to help you store your money long-term. Savings accounts are the ideal account to store your emergency fund, as well as savings toward other long-term goals, such as a down payment on a home or your dream vacation.

Savings accounts, especially high-yield savings accounts, also allow you to earn interest on your deposits. Each statement period, your financial institution will pay an established variable interest rate every single day on the funds in your account and that may help grow your savings over time.

Benefits	Drawbacks
Designed to help you store money and work toward longer-term financial goals The ability to earn interest and accelerate your savings over time Some financial institutions offer the opportunity to earn higher interest rates or rewards for maintaining higher balances	Typically does not come with a debit card linked to the account May require a minimum balance to open the account or to avoid or minimize account fees Typically allows only a few withdrawals per statement period, as the account is not intended for day-to-day transaction needs

Certificates of Deposit (CD)

As you develop a more complex savings strategy, you may wish to incorporate a Certificate of Deposit (CD) into your financial plan.

Intended as an alternative to a traditional savings account, a CD allows you to earn a fixed interest rate over a set period of time, known as the term. The length of the term is defined in your agreement with your financial institution and could range from one month to six years.

CDs are usually best suited to account holders with long-term savings goals. However, different types of CDs are available for those with different financial goals.

Benefits	Drawbacks
Often allows you to earn fixed rates versus the variable rates than you would earn with a savings account A range of term lengths allows you to customize your CD to your goals Some CD types allow you to withdraw some money before the term is up	You will not be able to withdraw the funds before the term is up without incurring a penalty fee

Money Market Accounts

Opening a Money Market account provides the benefits of a savings account with some of the benefits of a checking account.

Like a regular savings account, a Money Market account allows you to earn interest on your funds, and may even offer more competitive variable interest rates than a standard savings account. At the same time, you’re able to withdraw money without incurring a penalty, though your financial institution may limit the number of debits allowed per statement cycle.

Benefits	Drawbacks
Earn interest on your money, similar to how you would with a savings account May offer higher interest rates than standard savings accounts Allows some of the flexibility of a checking account, with some banks offering unlimited ATM transactions	May come with higher fees or higher minimum balances than those for standard checking or savings accounts Limited debit transactions per statement cycle

Individual Retirement Accounts (IRAs)

Saving for retirement is likely a key part of your financial strategy, and opening an Individual Retirement Account (IRA) can help. IRAs may be ideal for people who are self-employed or anyone looking to supplement their 401(k).

Benefits	Drawbacks
Helps you prepare for a financially secure retirement Can be used to complement a 401(k) retirement savings plan IRAs offer tax advantages, such as tax-free earnings (for a Roth IRA account) or tax-deferred earnings	Money cannot be withdrawn early (before age 59 1/2) without incurring a penalty (there are some exceptions)

Why Should I Open a Bank Account?

Opening a bank account is essential for storing and managing your money safely. The right accounts give you access to your funds, allow you to generate interest and make your money work harder for you while helping you plan for the future you want.

Most account owners will need multiple accounts to meet their personal finance needs, and a combination of the accounts listed above can help you do just that.

Choosing the Right Bank Account for You

When opening a bank account, it’s just as important to choose the right bank or financial institution as it is to choose the right type(s) of accounts.

As you evaluate potential banking partners, consider the following:

Whether the bank or credit union is Federal Deposit Insurance Corporation (FDIC) insured. The FDIC insures up to $250,000 per depositor, per account ownership category. Choosing a financial institution that is FDIC insured means your money is protected up the applicable limits in the event of bank failure
Whether the bank offers competitive interest rates that maximize the interest you earn on your deposits
Whether the accounts have minimum balance requirements and whether those minimums fit your current financial situation
Whether the accounts have associated fees and whether those fees can be potentially avoided

Opening a bank account begins a long-term partnership with a bank, so don’t settle for less than you need. We’re here to help. Find out whether First Republic’s personal banking options are the right solution for you.

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